* Limited steel supply as China sustains pollution fight
* Strengthening economy also boosting sentiment
* Traders' rebar stockpiles rise for 3rd week in a row
By Manolo Serapio Jr
MANILA, Dec 12 (Reuters) - Chinese steel futures surged as much as 7 percent to their highest in 32 months on Monday as Beijing's resolve to tackle a glut helped tighten supply, lifting raw material iron ore to its strongest in almost three years.
The two commodities resumed their rally after Friday's pullback that followed a six-day run-up, also bolstered by signs of recovery in the world's No. 2 economy.
The most-active rebar on the Shanghai Futures Exchange touched its upside limit of 3,557 yuan ($514) a tonne, its loftiest since April 2014. It was up 5.3 percent at 3,501 yuan by 0306 GMT.
Iron ore on the Dalian Commodity Exchange was up 5.8 percent at 650 yuan per tonne after earlier peaking at 657 yuan, a level last seen on January 2014.
Steel supply is tightening as the Chinese government continues to restrict production by heavy industries including steel and cement in its fight against pollution, traders said.
"Many steel mills have lifted their offer price over the weekend amid limited supply," said a trader in Shanghai.
While seasonal steel demand is lean during winter, some traders are restocking on expectations that the market will remain strong going forward, he said.
Stockpiles of rebar among Chinese traders rose for a third straight week to 3.79 million tonnes on Dec. 9, according to data tracked by SteelHome consultancy. SH-TOT-RBARINV
Signs of a big revival in China's economy also continued to boost sentiment towards commodities.
China's producer prices rose at the fastest pace in more than five years in November, boosting industrial profits and giving firms more cash flow to pay off mountains of debt, data showed on Friday.
"Metals producers who are focused on smelting such as copper and aluminium and steel production will see their profit growing on the back of enlarged revenue bases," Argonaut Securities said on the impact of the surge in producer prices.
Tracking the rally in futures, iron ore spot prices also climbed above $80 a tonne last week. Iron ore for delivery to China's Qingdao port .IO62-CNI=SI stood at $81.66 a tonne on Friday, gaining 5 percent last week, according to Metal Bulletin.
The spot benchmark hit $82.25 on Wednesday, the highest since October 2014. ($1 = 6.9146 Chinese yuan) (Reporting by Manolo Serapio Jr.; Editing by Richard Pullin)